BY LUIS GOMEZ COBO, FELIPE CANALES
Consequently, food security concerns abound, and the Chinese government is implementing initiatives to assure a food supply for its 1.4 billion people.
Supply constraints and an increasingly demanding population intensify food dependencies from abroad. According to the USDA, in the last three decades, barley imports to
While in previous years, the majority of
Ethanol production is a growing industry whose fortunes are tied to the agribusiness sector, and we project alot of growth will take place in this area.
Foreign land acquisitions by Chinese firms have increased in number and scale. Globally, approximately 56 million hectares worth of large-scale land acquisition deals were announced before the end of 2009. But due to the lack of reliable information it is difficult to fully comprehend this trend. The most recent study on land acquisitions was published in 2010 by the World Bank. According to the report, more than 70 percent of land acquisitions have taken place in
Buying land is difficult because there are myriad issues, ranging from political to economic, surrounding the act of acquiring property in a foreign country. In most cases, the countries in which land is acquired need foreign investment. The companies buying land are perceived by the public as invaders, and land acquisitions raise concerns related to environmental and social impact as well as domestic food security. This, however, is just the perception, and we at SinoLatin feel that an acquisition, if done correctly, helps countries by creating new and higher paid salaries, upgrading worker skills, facilitating technology transfer, expanding market reach and improving infrastructure.
Investors carrying out these types of investments are mostly private companies with government support. The
Despite this, however,
Despite a somewhat hostile government policy,
Cooperation between China and other nations takes place in a variety of forms, and the Chinese government is very active in using its economic control to further its national interests. In South America, for example, Chinese firms do large amounts of business with Ecuadorean companies, and at the 11th Sino-Ecuadorean summit, eight Chinese companies signed a US$20 million cooperation agreement stating that Chinese companies will import bananas and fish powder from Ecuador. During their stay, the Chinese delegation had members representing entities like Sinochem, COFCO Corporation, the China National Service Corporation and China Agriculture Development Corporation. In addition to signing the above mentioned agreement and a few others, both sides held talks regarding further cooperation with 16 Ecuadorian companies related to agriculture, cacao, coffee, timber, fishery and seafood sectors. Another of China’s biggest South American trading partners is Venezuela, which in August of 2011 commenced the construction of a new agricultural equipment factory on a 26-hectare plot in Anaco, Venezuela. The funding was provided through a Sino-Venezuela fund , and the estimated investment was US$490 million. The plant is to be completed by October 2012 and will provide 1,500 jobs.
Argentina represents a unique opportunity for China because it has a large amount of easily exploitable natural resources, especially in the agricultural sector. In line with Beidahuang’s ongoing deal with the State of Rio Negro in Argentina, the Group is also seeking to cooperate with Argentina’s most prominent agriculture company. In June of 2011, Beidahuang announced that it had signed a cooperation agreement with Cresud, Argentina’s largest soybean producer and one of the most important agriculture companies. Cresud has around 24 farms and controls around 1 million hectares of arable land. According to the media, the Group’s intentions were to establish cooperation’s for the purchase of lands, the rental for equipment for agriculture and logistics mainly in the soybean sector. Beidahuang operates around 2 million hectares of farmland in foreign countries.
Chinese firms have likewise been very active in Brazil. The Brazilian food conglomerate Marfrig Alimentos recently announced the launch of two joint-ventures in China in which the Latin American firm will invest US $300 million to build food distribution and processing capabilities in the Middle Kingdom. Brazilian exporters are tripping over themselves in the rush for access to the Chinese market, and the high growth experienced by South American meat and food-products exporters is expected to continue.
While South America is a region that offers China a simple way to avoid a natural resources problem, the US is still a key trade partner. In fact, in early 2011, ten Chinese companies agreed to the largest soybean purchase agreement in history. The total transaction was worth US$6.7 billion or the equivalent to nearly half of 2010 total trade. A total of 11.5 million tons of soybeans are scheduled for delivery toChina over the next year or so, enough to sate China’s total import needs for two orthree months. The deal was signed with America’s top agriculture companies (Archer Daniels Midland Co, Bunge, Cargill, Zennoh Grain Corp.) as Chinese firms travelled with President Hu Jintao.
Another example of Sino-foreign agribusiness partnership came in September 2010, when China Bright signed an agreement to form a strategic partnership with Japanese Company Mitsui. Under the new partnership, Mitsui would share its business experience and technology, its specialized knowledge in business management, and its global networks to help China Bright become a global company. China Bright in exchange will provide Mitsui with its business experience, infrastructure, networks and access in a wide range of products (upstream to downstream) to expand the company’s business into the Chinese market.
Finally, just recently, on November first of this year, the Australian cotton cooperative
Namoi Cotton entered Heads of Agreement for the proposed establishment of a 50 percent/50 percent joint-venture with China National Cotton Group Corporation to for the procurement and global marketing of Australian bale cotton. The joint-venture is expected to assist Namoi Cotton in mitigating the risks associated with market volatility and liquidity. This agreement is yet another move of the greater trend of Chinese agribusiness companies looking to foreign cooperate with foreign entities to satisfy their local demand.
LATIN AMERICA: FAVORABLE LAND WITH OPPORTUNITIES
Latin America is the world’s farm. In terms of arable land China has 0.11 hectares per capita, or less than half of the world average. On the other hand, Latin America averages twice as much at (0.25) as China. Argentina and Paraguay have seven times more arable land than China while Brazil, Uruguay, Bolivia, Nicaragua and Cuba have more by a threefold. Mexico and Belize have twice as much.
Land is useless without water, but Latin America is a particularly alluring region for agribusiness because the region holds 34 percent of the world’s total renewable water resources. China only accounts for 5.2 percent of the total share. This figure is more astounding considering that Latin America has less than half the amount of people. In addition, the World Bank places Latin America among the regions with the cleanest water. Every country in South America aside from Jamaica and El Salvador have water so pure that there exists only 0.5 tons of pollutant/km3 of water. On average, water in China has 3.78 tons of pollutant for each cubic kilometer. A clean freshwater supply is crucial for agriculture in a country, for it helps reduce dependency on pump sets, purifiers and irrigation systems--equipment that significantly increases costs.
Latin America is filled with rivers, streams and lakes. It holds three of the world’s ten largest rivers: the Amazon, Orinoco and Parana. China, on the other hand, is home to the world’s second largest river, the Yangtze, which is ten times smaller than the Amazon and seriously affected by pollution. In addition, Latin America is privileged with favorable weather for agricultural
Latin American agribusiness is mostly centered on an export model, but almost all countries in the region are currently unable to meet global demand due to poor infrastructure. While logistics costs have fallen in the rest of the world, they have risen in Latin America. Studies show that doubling the cost of a country’s transportation reduces trade by up to 80 percent. In Brazil, transportation of certain products costs up to seven times that of other nations. A 2009 survey conducted there found that 76 percent of those polled felt the biggest obstacle to growth was poor infrastructure. With their expertise in managing large infrastructure projects and a voracious appetite for food, we feel Latin America represents a perfect opportunity for Chinese businesses. In addition to fulfilling the government’s desire for businesses to go global, they also secure infrastructure contracts and future food supplies.
China is urbanizing in a dramatic fashion. Estimates expect another 300 million people to move to cities by 2025. As a consequence, China will have increase the resources devoted to its “Go Out” policy for food resources. Even though Latin America is on the opposite side of the world and has infrastructure problems, Chinese companies are very active in the region, and are only just beginning to realize the opportunities that await in Latin America.
This article is based on an excerpt of a white paper by SinoLatin Capital. Republished with permission.